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The Biggest Misconception In Retirement Thumbnail

The Biggest Misconception In Retirement

The biggest misconception in retirement

As I write this blog in June 2022, we are currently getting a master class on how inflation can affect retirement planning and your purchasing power in general. Probably the biggest misconception I see when talking to retirees or soon to be retirees is that they don't account for 30 years of inflation in retirement. I hear statements like "Our retirement income will more than cover our living expenses in retirement." To which my question is this:

Are you certain that your retirement income today will buy your favorite box of cereal 30 years from now?

Don't get me wrong. I hope you're right, but it might do you some good to spend an hour with me or somebody projecting your probable living costs and probable income over the next 30 years because statistically speaking, that's how long you, your spouse or both of you will likely live in retirement.

What I see way too often is that people do not mentally account for the compounding effect of inflation. 

Here's a quick example:

  • Just based on the historical inflation rate of 3% annually something that costs $4 today will cost $9 in 30 years.

If your retirement income is substantially fixed in cash, CD's, bonds, pensions, etc. inflation will overwhelm your income at some point during those 30 years.

Don't worry. It's a common misconception and one most of us default to. We assume that the biggest issue in retirement is losing our "money" or principal. However, the biggest issue in retirement is losing our purchasing power. There is a huge difference between those two statements. The problem we need to solve is:

How do we create an income that rises more than inflation for the next 30 years?

Retirement will last 20-30 years and during that time your living costs will double. What's your plan to double your income during that time? If you don't have an answer to that question, I would be happy to set aside an hour to help you examine your unique financial situation.

In conclusion, I'm not saying your income isn't enough today when a box of Captain Crunch costs around $4. I'm asking, have you made a plan to afford that same box of Captain Crunch when it costs $9 in 30 years?

You need a plan

At 80/20 Financial Services, we are retirement planners. We believe a goal of retiring - without a plan to increase your income during retirement- is simply a plan to run out of money. Retirement planning is a strategy to maintain and increase that dollar amount over time.

If you're age 50 or over and still in the accumulation phase (pre-retirement) we can help you figure out where you need to go and how to get there. If you are retired or nearing retirement, we can create a plan which will outpace inflation and increase your income over time. The consultation is free and without obligation. Contact us to set up a consultation.

Our mission is to increase your time, money and peace of mind by helping you create retirement income and investment strategies that align with your retirement goals and then guide you through the completion of those strategies year after year.

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Thanks for reading!

Brian Coleman-Owner/Advisor

80/20 Financial Services is an Independent Registered Investment Advisor (RIA) registered in the state of Missouri (CRD# 300772). We help clients in Missouri and throughout the United States transition into retirement. Being independent allows us to work exclusively for YOU.